First let us know what is a demat account
A Demat account is digital platform where investors can hold shares and securities in electronic form. A Demat is short form of Dematerialised. A Demat account can be used to make investments in stocks, bonds, mutual funds, and other market assets which simplifies trading and management by allowing easy buying and selling of securities.
Benefits of having a Demat Account
Earlier, investors are used to hold physical share certificates as proof because they had to physically transfer the share certificates when want to buy or sell shares which was time-consuming and various risks are involved in this process like loss and delays in settlement. But with the introduction of Demat accounts, the process became has much easier and efficient.
- It is easy to access the investment portfolios and statements through Demat account.
- Benefits such as dividends, interest, refunds, stock splits etc are directly auto-credited in the account.
- Transferring of shares has become simpler.
- It facilitates faster and easier while selling of shares.
- It allows users to freeze specific securities for a certain period, restricting debit or credit transactions.
Tax implications of opening a Demat account
If you have opened a demat account it will not directly have a tax impact on it but if you have made any transactions like buying and selling of shares through the account you may have tax implications.
Short-Term Capital Gains (STCG)
The Gains which arises after selling the shares which is held within 12 months of acquisition are known as Short-Term Capital Gains (STCG)
Tax rate for Short-Term Capital Gains is 15% or according to income tax slab if STT is not applicable.
Long-Term Capital Gains (LTCG)
Investors selling shares which is held for more than 12 months, if any profit is considered are known as Long-Term Capital Gains.
Tax rate for Long-Term Capital Gains is 10% but up to Rs. 1 lakh LTCG annually is tax-exempt
Short-Term Capital Loss (STCL)
When shares are sold within 1 year but at a loss are known as Short-Term Capital Loss.
Long-Term Capital Loss (LTCL)
When shares are sold after holding share more than 1 year but at a loss are known as Long-Term Capital Loss.
Also, have a look at the article: Taxation Of Income From Shares For FY 23-24
Which ITR to choose if you are a salaried person and also have a capital gain from the demat account?
You can choose ITR-2 which is applicable for individuals and Hindu Undivided Families (HUFs) who have income from sources other than business or profession. ITR-2 includes income from salary, house property, capital gains, other sources, and foreign income.
Is there any tax benefits associated with investing through a Demat account
Yes, you can get a benefit if invested in -
- ULIPs : Unit Linked Insurance Plan are eligible for tax benefits under Section 80C with a limit upto 1.5Lakh. It provides a dual tax-saving advantage if the maturity amounts are received after the lock-in period is also tax-exempted.
- ELSS: Equity Linked Savings Scheme are also fully exempt up to Rs. 1.5 lakh under Section 80C of income tax act.
Other than these you may also avail more deductions if you are a salaried person
For Example few deductions are:
Section 80D: Deductions can be claimed for health insurance premiums upto 50,000 (Self, Children, Spouse = 25,000 & Parents = 25,000) if age below 60 yrs and 1,00,000 (Self, Children, Spouse = 50,000 & Parents = 50,000 if age above 60 yrs)
Section 24(b): You can claim deduction up to Rs. 2,00,000 for self-occupied property, or entire interest amount for let-out properties.
Section 80EE: You can claim deductions upto Rs.50,000 under this section if you have taken home loan during the period 01-04-2016 to 31-03-2017.
Section 80EEA: Deductions under section 80EEA can be claimed upto Rs.1,50,000 if you have availed a home loan during the period between 01-04-2019 to 01-04-2022.
Note: if you select new tax regime, there will be no deduction in respect of interest on loan borrowed for self-occupied property,
Section 80TTA: Deduction can be availed upto Rs. 10,000 on interest earned from savings accounts.
Section 10(13A): Salaried persons can also claim exemption on House Rent Allowance.
- Actual Annual HRA Disbursed
- 40% or 50% of Basic Salary
- Actual Rent Paid less than 10% of Basic Salary
Deductions or exemptions available for losses incurred in stock trading through a Demat account
The losses incurred can be set off against both Short-Term Capital Loss and Long-Term Capital Gains in financial year or can be carried forward for up to 8 years. LTCL set off against LTCG from transfers made applicable after April 1, 2018.
Know about Set Off and Carry Forward of Losses
Treatment of Tax for dividends received
Dividend income are taxable as per the income tax slab rates.
For example, if an individual falls in the 30% income tax slab, all dividend income received by them would be taxed at 30%.
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